If you contact your insurer or insurance broker to insure your home or vehicle, be aware that they will ask for your permission to check your credit score. This is a review of your file, not a credit application. However, even though you have every right to refuse, there are a few points we would like to clarify with you in this regard.
In this article, Assurances Multi-Risques has decided to talk to you about credit scores, second chances at credit, and high interest rates. By the end of this article, you will understand how and why these factors influence your ability to obtain insurance!
What is a credit score?
Did you know that your credit history is kept in a file maintained by credit reporting agencies? In Canada, the main credit reporting agencies are Equifax Canada and TransUnion Canada. They collect information about how you use credit items such as credit cards and loans, and how you pay your bills. This information is then used to establish your credit report and
Your credit score is one of the main tools lenders use to decide whether to lend you money and to determine the interest rate they will offer you. Employers, landlords, and
Why does your credit score affect your insurance?
Your credit behavior gives your insurer an excellent indication of your ability to maintain and renovate the property it insures. Studies have also shown that credit scores are a key indicator in assessing the likelihood of a claim. The higher your credit rating, the lower the risk of a claim, and vice versa.
An insurer will therefore be more inclined to insure someone with a good credit rating, just as it may refuse to insure someone with a poor rating.
Here are a few tips to improve or maintain a good credit rating! You’ll also avoid insurance problems!
- Always make your payments on time. If you cannot pay the full amount, make at least the minimum payment.
- If you think you will have trouble paying a bill, contact the lender immediately. See if you can make special arrangements to repay your debt.
- Try to use less than 35% of your available credit.
- Limit the number of credit applications you make in a short period of time. It is best to only apply for credit when you really need it.
- A combination of various credit products could earn you more points, but don’t overdo it! Make sure you can repay the money you borrow. Otherwise, you could hurt your score by borrowing more than you can afford to repay.
(Source: Financial Consumer Agency of Canada)
Second and third chances at vehicle financing: be careful!
We know that life isn’t always rosy. Job loss, unemployment, mounting debt, burnout—despite these difficult times, you may still need to purchase a vehicle for transportation. Obtaining a loan or lease under such conditions can be complex. It can therefore be tempting to resort to second or even third chance financing, despite the particularly high interest rates.
However, you should be aware that simply going through a substandard lender for vehicle financing will automatically affect your auto insurance. Most standard insurers refuse to insure vehicles with interest rates above 10%.
With slogans like “Second chance credit” and “No application refused,” substandard lenders advertise themselves as saviors. However, as you now know, opting for second chance financing not only means exorbitant interest rates, but also often complications with your insurer. At Assurances Multi-Risques, we understand that regardless of your financial situation, buying a vehicle is sometimes essential. If financing through a second chance lender is unavoidable, we encourage you to contact an independent insurance broker specializing in substandard auto insurance before finalizing your purchase. This will help you avoid unpleasant surprises and further debt!